Moody's assigns Baa1 rating to Kaztransgas; Stable Outlook

/REUTERS, Frankfurt, November 17, 06/ - Moody's Investors Service has assigned a senior unsecured issuer rating of Baa1 to Kaztransgas. The rating outlook is stable. This is the first time that Moody's has rated this company. In assigning the ratings to Kaztransgas (KTG), Moody's has taken into account: (i) KTG's monopoly position in gas transmission within Kazakhstan for international transit, export and domestic supply under a long-term concession agreement (until 2017); (ii) strong position in gas distribution and supply to industrial and retail customers; (iii) strong geographical position integrated within the former Soviet Union gas network linking a region of increasing gas production in the Eastern Caspian and gas-rich Turkmenistan with Russia and the growing gas markets in Europe; (iv) the company's strategic importance to the strongly developing Kazakh economy and its integral relationship with the national oil and gas company, KazMunaiGas (KMG), the national company presenting state strategic interests in the gas and oil industry and wholly-owned by the Kazakh government; (v) expected growth in demand for natural gas in Europe which would positively effect the volume being transported by KMG; (vi) good growth prospects coming from increase in gas production in Kazakhstan and regional demand. The Baa1 issuer rating anticipates that KTG's historically weak financial ratios will continue to strengthen materially over the intermediate term as a result of conservative financial policies. The rating also reflects (i) the company's relatively heavy investment needs to maintain and increase the capacity of its ageing gas pipeline system; (ii)its dependence on an anticipated material increase in the volume of gas being exported from Turkmenistan via Kazakhstan to Russia; (iii) the need to sustain or raise tariff levels for the transmission of international gas flows through its pipelines; (iv) significant counterparty concentration risk; (v) potential negative impact on performance from political interference, notably having to assume responsibility for the unprofitable distribution and supply of power and heat in the city of Almaty. KTG is fully owned by KazMunaiGas, itself in turn being 100% state-owned and the governments holding company for its strategic oil and gas energy assets. Therefore KTG is rated in accordance with Moody's GRI methodology, and the Baa1 foreign currency issuer ratings reflect the combination of the following inputs: - Baseline credit assessment of 12 (on a scale of 1-21, where 1 represents lowest credit risk) - Baa1 local currency rating of the Kazakhstan government - Low dependence - High support The baseline credit assessment of 12 is underpinned by the company's role as the state-owned gas transmission and supply utility of Kazakhstan, and assumes that KTG will not undertake strategic capital expenditure plans without shareholder agreement and long-term ship or pay commitments in place from its counterparties. Low dependence reflects KTG's vital role in the transport of Central Asia gas to Gazprom and ultimately to Western Europe, from which it derives bulk of its revenues, and its strategic position from which it is able to earn significant export revenues, de-linking its financial performance from that of the Kazakhstan government . High support reflects the strategic importance of the company to the state, the interventionist history of the government, and the importance of energy export revenues to the economy of Kazakhstan. The rating outlook is stable reflecting the expectation that the company will increase gas throughput from third-party transit and export enabling it to bolster cash flows and strengthen debt protection measurements. Kaztransgas, headquartered in Astana, Kazakhstan, is the indirectly wholly state owned gas transmission company of Kazakhstan. With over 10,000 km of trunk pipelines, the company's transit in 2005 was 130 bcm of gas up from 121 bcm transported in 2004 and had revenues of USD 760 million and EBITDA of USD 183 million in 2005. Frankfurt Johannes Wassenberg Managing Director Corporate Finance Group Moody's Deutschland GmbH JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Moscow Larissa Loznova Vice President - Senior Analyst Corporate Finance Group Moody's Eastern Europe Telephone: +7-495-771-7146 Facsimile: +7-495-937-8290 [2006-11-17]